For nearly a decade, rock-bottom mortgage rates have fueled the housing market, but that could end as rates start climbing.
More than half of current home shoppers consider rising interest rates among the top factors affecting their ability to buy a home, according to a new survey from Zillow Group Mortgages.
In the short-term, however, the survey found that most buyers’ plans won’t be affected. Eight in 10 homebuyers surveyed said that they’ll continue with their plans even if rates increase their monthly mortgage payments by $100. Nearly half said they’d still be able to buy a home if their monthly payment went up $200.
Still, every increase in rates would push some buyers out of the market. On the median priced home, an increase in mortgage rates from 4 percent to 5 percent would add $100 to the monthly bill, according to Zillow. (Rates are currently 3.89 percent on average.)
The increase would be even greater in more expensive markets. In San Jose, for example, the same increase in rates would push the monthly mortgage bill up by more than $460.
“For years, falling interest rates have been a boon to the U.S. housing market, keeping monthly mortgage payments low for first-time and move-up buyers alike, even as home values rose,” Erin Lantz, Zillow Group vice president of mortgages, said in a statement. “As rates rise this year, first-time buyers and those looking to buy in expensive markets where affordability is already an issue will feel the pinch of higher rates on their budget.”